Pike RFP

Continued from page 3

If you are currently invested in a target date or target

risk funds, these investment vehicles are automatically

rebalanced. Target date or target risk funds help you avoid

two common mistakes: failure to rebalance your portfolio

and frequent trading to chase performance. We recommend

taking advantage of either the automatic rebalance feature

or target date / target risk funds as both options take the

pressure off you to remember to calculate and perform

rebalance transactions manually.

Target Risk Funds:

Target risk funds generally contain different portions of stocks,

bonds, and cash equivalents. These funds are often labeled

by the level of market risk tolerance. For this discussion, let’s

examine the difference between conservative, moderate, and

aggressive target risk funds. These three different risk levels

contain different mixes of stocks and bonds. Conservative

funds hold more fixed income and fewer stocks, while

aggressive funds hold more stocks and less fixed income.

Moderate funds are invested somewhere in between. These

investments are geared toward participants who are looking

to invest based on their risk profiles. This option also relieves

the pressure of building your own portfolio. When you are

invested in a target risk fund, your statements will only show

one investment; however, these funds are often “funds of

funds.” This means that each target risk fund consists of a

number of stock and bond funds or other securities. From

the perspective of time horizon, aggressive target risk funds

generally target investors in their twenties and thirties, while

conservative target risk funds are meant to attract employees

nearing retirement. It is important to invest in the appropriate

risk level for your age.

Target Date Funds:

If you would prefer not to build your own portfolio and are

also not inclined to rebalance or make adjustments over

time, then target date funds may be the right option for you.

Target date funds are similar to target risk funds in that

they contain a mixture of bonds and stocks. The underlying

funds that make up the target date series may own hundreds

of securities, making them very diversified. In addition,

they have the added feature of changing asset allocation

automatically over time to accommodate the changes in risk

levels as you near retirement.

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Let us take two hypothetical investors to help explain how

target date funds work. The first employee is young and is

hoping to retire in the year 2049. He would choose a target

date fund that represents that approximate year of potential

retirement – Target Date Fund 2050. The other, who is older

and planning on retiring in the year 2021, would choose

Target Date Fund 2020. The Target Date Fund 2050 is more

aggressive and heavily weighted in stocks; poised to take

advantage of the power of compounding during its long time

horizon. Target Date Fund 2020 will hold more bonds and

cash equivalents and has less stock exposure; it should

experience less market volatility and has a focus on capital

preservation. Neither of our hypothetical investors would

need to rebalance or manually change from aggressive to

conservative portfolios as their time horizon shortens. The

“glidepath” of the 2050 fund allows the investor to stay

in one target date fund through his working years and into

retirement as it periodically adjusts risk as the time horizon

decreases. The glidepath of the 2020 fund for the second

investor is positioned to better protect the savings and gains

of the portfolio.

Comparing Target Risk vs. Target Date Funds

Investing in target risk funds requires periodic maintenance

and potential fund changes as you near retirement, while target

date funds do not as they offer a glidepath through time. While

the low maintenance aspect of target date funds is attractive,

this hands-free approach to investing is not for everyone. If

you are invested in a target date fund, you are accepting a

portfolio manager’s allocation at any given time. It may be the

case that you are more comfortable with risk in your fifties or

less comfortable with risk in your twenties. If you have strong

preferences when it comes to exposure to market risk, then the

automatic nature of target date funds will not be attractive to

you. In this case, you may want to pick a target risk fund to suit

your risk level, or construct a portfolio with other funds in the

401(k) or 403(b) lineup. Remember, both target risk funds and

target date funds are designed to be one-fund portfolios. This

means that the asset allocation within these funds will provide

sufficient diversification for healthy retirement investing.

Feel free to contact your plan provider or CBIZ Retirement

Plan Services if you have any questions about rebalancing

your portfolio or choosing the appropriate target date or

target risk fund. Our toll-free number is located on the

bottom of this newsletter.

This market commentary contains our current opinions and does not represent a recommendation of any particular security, strategy or investment product.

Such opinions are subject to change without notice. These comments are distributed for documenting due diligence and educational purposes. No part of this

publication may be reproduced in any form, or referred to in any other publication without express written permission. Past performance is no guarantee of future

results. Indexes are not managed and cannot be invested in directly. All returns include reinvested dividends, sourced from Morningstar and Bloomberg.

Securities and investment advisory services offered through CBIZ Financial Solutions, Inc.

Member FINRA / SIPC and SEC Registered Investment Adviser

Home Office located at:

6050 Oak Tree Blvd, Suite 500, Cleveland, OH 44131 (216) 447-9000